Category Archives: Videoconferencing

About two weeks ago, the U.S. House Permanent Select Committee on Intelligence held a hearing on “the national-security threats posed by Chinese telecom companies doing business in the United States.” The Chinese telecom companies called to account were Huawei and ZTE, each of which is keen to expand its market reach into the United States.

It is difficult to know what to believe when it comes to the charges leveled against Huawei and ZTE. The accusations against the companies, which involve their alleged capacity to conduct electronic espionage for China and their relationships with China’s government, are serious and plausible but also largely unproven.

Frustrated Ambitions

One would hope these questions could be settled definitively and expeditiously, but this inquiry looks be a marathon rather than a sprint. Huawei and ZTE want to expand in the U.S. market, but their ambitions are thwarted by government concerns about national security. As long as the concerns remain — and they show no signs of dissipating soon — the two Chinese technology companies face limited horizons in America.

Huawei and ZTE say they’re facing discrimination and protectionism in the U.S. Both seek to become bigger players globally in smartphones, and Huawei has its sights set on becoming a major force in enterprise networking and telepresence.

As a global company that earns a large part of its revenue from markets outside of China, we know that any improper behaviour would blemish our reputation, would have an adverse effect in the global market, and ultimately would strike a fatal blow to the company’s business operations. Our customers throughout the world trust Huawei. We will never do anything that undermines that trust. It would be immensely foolish for Huawei to risk involvement in national security or economic espionage.

Let me be clear – Huawei has not and will not jeopardise our global commercial success nor the integrity of our customers’ networks for any third party, government or otherwise. Ever.

In one instance, involving the tapping of 100 mobile phones belonging to Greek politicians and senior civil servants in 2004 and 2005, a Vodafone executive was found dead of an apparent suicide. In another case, a former head of security at Telecom Italia fell off a Naples motorway bridge to his death in 2006 after discovering the illegal wiretapping of 5,000 Italian journalists, politicians, magistrates, and — yes — soccer players.

No question, there’s a long history of telco networks and the gear that runs them being exploited for “spookery” (my neologism of the day) gone wild. That historical context might explain at least some of the acute and ongoing suspicion directed at Chinese telco-gear vendors by U.S. authorities and politicians.

Analysts and observers have variously applauded or denounced Cisco for its network-Cisco ONE programmability pronouncements last week. Some pilloried the company for being tentative in its approach to SDN, contrasting the industry giant’s perceived reticence with its aggressive pursuit of previous emerging technology markets such as IP PBX, videoconferencing, and converged infrastructure (servers).

Conversely, others have lauded Cisco’s approach to SDN as far more aggressive than its lackluster reply to challenges in market segments such as application-delivery controllers (ADCs) and WAN optimization, where F5 and Riverbed, respectively, demonstrated how a tightly focused strategy and expertise above the network layer could pay off against Cisco.

Different This TIme

But I think they’ve missed a very important point about Cisco’s relationship to the emerging SDN market. Analogies and comparisons should be handled with care. Close inspection reveals that SDN and the applications it enables represent a completely different proposition from the markets mentioned above.

Let’s break this down by examining Cisco’s aggressive pursuit of IP-based voice and video. It’s not a mystery as to why Cisco chose to charge headlong into those markets. They were opportunities for Cisco to pursue its classic market adjacencies in application-related extensions to its hegemony in routing and switching. Cisco also saw video as synergistic with its core network-infrastructure business because it generated bandwidth-intensive traffic that filled up existing pipes and required new, bigger ones.

Meanwhile, Cisco’s move into UCS servers was driven by strategic considerations. Cisco wanted the extra revenue servers provided, but it also wanted to preemptively seize the advantage over its former server partners (HP, Dell, IBM) before they decided to take the fight to Cisco. What’s more, all the aforementioned vendors confronted the challenge of continuing to grow their businesses and public-market stock prices in markets that were maturing and slowing.

Cisco’s reticence to charge into WAN optimization and ADCs also is explicable. Strategically, at the highest echelons within Cisco, the company viewed these markets as attractive, but not as essential extensions to its core business. The difficulty was not only that Cisco didn’t possess the DNA or the acumen to play in higher-layer network services — though that was definitely a problem — but also that Cisco did not perceive those markets as conferring sufficiently compelling rewards or strategic advantages to warrant the focus and resources necessary for market domination. Hence, we have F5 Networks and its ADC market leadership, though certainly F5’s razor-sharp focus and sustained execution factored heavily into the result.

To Be Continued

Now, let’s look at SDN. For Cisco, what sort of market does it represent? Is it an opportunity to extend its IP-based hegemony, like voice, video, and servers? No, not at all. Is it an adjunct market, such as ADCs and WAN optimization, that would be nice to own but isn’t seen as strategically critical or sufficiently large to move the networking giant’s stock-price needle? No, that’s not it, either.

So, what is SDN’s market relationship to Cisco?

Simply put, it is a potential existential threat, which makes it unlike IP PBXes, videoconferencing, compute hardware, ADCs, and WAN optimization. SDN is a different sort of beast, for reasons that have been covered here and elsewhere many times. Therefore, it necessitates a different sort of response — carefully calculated, precisely measured, and thoroughly plotted. For Cisco, the ONF-sanctioned approach to SDN is not an opportunity that the networking giant can seize, but an incipient threat to the lifeblood of its business that it must blunt and contain — and, whatever else, keep out of its enterprise redoubt.

But let’s discuss Cisco and storage first, then consider the matter within a broader context.

Risks, Rewards, and Precedents

Obviously a move into storage would involve significant risks as well as potential rewards. Cisco would have to think carefully, as it presumably has done, about the likely consequences and implications of such a move. The stakes are high, and other parties — current competitors and partners alike — would not sit idly on their hands.

Then again, Cisco has been down this road before, when it chose to start selling servers rather than relying on boxes from partners, such as HP and Dell. Today, of course, Cisco partners with EMC and NetApp for storage gear. Citing the precedent of Cisco’s server incursion, one could make the case that Cisco might be tempted to call the same play .

After all, we’re entering a period of converged and virtualized infrastructure in the data center, where private and public clouds overlap and merge. In such a world, customers might wish to get well-integrated compute, networking, and storage infrastructure from a single vendor. That’s a premise already accepted at HP and Dell. Meanwhile, it seems increasingly likely data-center infrastructure is coming together, in one way or another, in service of application workloads.

Limits to Growth?

Cisco also has a growth problem. Despite attempts at strategic diversification, including failed ventures in consumer markets (Flip, anyone?), Cisco still hasn’t found a top-line driver that can help it expand the business while supporting its traditional margins. Cisco has pounded the table perennially for videoconferencing and telepresence, but it’s not clear that Cisco will see as much benefit from the proliferation of video collaboration as once was assumed.

To complicate matters, storm clouds are appearing on the horizon, with Cisco’s core businesses of switching and routing threatened by the interrelated developments of service-provider alienation and software-defined networking (SDN). Cisco’s revenues aren’t about to fall off a cliff by any means, but nor are they on the cusp of a second-wind surge.

Such uncertain prospects must concern Cisco’s board of directors, its CEO John Chambers, and its institutional investors.

Suspicious Minds

In storage, Cisco currently has marriages of mutual convenience with EMC (VBlocks and the sometimes-strained VCE joint venture) and with NetApp (the FlexPod reference architecture). The lyrics of Mark James’ song Suspicious Minds are evocative of what’s transpiring between Cisco and these storage vendors. The problem is not only that Cisco is bigamous, but that the networking giant might have another arrangement in mind that leaves both partners jilted.

Neither EMC nor NetApp is oblivious to the danger, and each has taken care to reduce its strategic reliance on Cisco. Conversely, Cisco would be exposed to substantial risks if it were to abandon its existing partnership in favor of a go-it-alone approach to storage.

I think that’s particularly true in the case of EMC, which is the majority owner of server-virtualization market leader VMware as well as a storage vendor. The corporate tandem of VMware and EMC carries considerable enterprise clout, and Cisco is likely to be understandably reluctant to see the duo become its adversaries.

Caught in a Trap

Still, Cisco has boxed itself into a strategic corner. It needs growth, it hasn’t been able to find it from diversification away from the data center, and it could easily see the potential of broadening its reach from networking and servers to storage. A few years ago, the logical choice might have been for Cisco to acquire EMC. Cisco had the market capitalization and the onshore cash to pull it off five years ago, perhaps even three years ago.

Since then, though, the companies’ market fortunes have diverged. EMC now has a market capitalization of about $54 billion, while Cisco’s is slightly more than $90 billion. Even if Cisco could find a way of repatriating its offshore cash hoard without taking a stiff hit from the U.S. taxman, it wouldn’t have the cash to pull of an acquisition of EMC, whose shareholders doubtless would be disinclined to accept Cisco stock as part of a proposed transaction.

Therefore, even if it wanted to do so, Cisco cannot acquire EMC. It might have been a good move at one time, but it isn’t practical now.

Losing Control

Even NetApp, with a market capitalization of more than $12.1 billion, would rate as the biggest purchase by far in Cisco’s storied history of acquisitions. Cisco could pull it off, but then it would have to try to further counter and commoditize VMware’s virtualization and cloud-management presence through a fervent embrace of something like OpenStack or a potential acquisition of Citrix. I don’t know whether Cisco is ready for either option.

Actually, I don’t see an easy exit from this dilemma for Cisco. It’s mired in somewhat beneficial but inherently limiting and mutually distrustful relationships with two major storage players. It would probably like to own storage just as it owns servers, so that it might offer a full-fledged converged infrastructure stack, but it has let the data-center grass grow under its feet. Just as it missed a beat and failed to harness virtualization and cloud as well as it might have done, it has stumbled similarly on storage.

The status quo is likely to prevail until something breaks. As we all know, however, making no decision effectively is a decision, and it carries consequences. Increasingly, and to an extent that is unprecedented, Cisco is losing control of its strategic destiny.

Those of you following the Avaya saga might want to check out the company’s latest quarterly financial results, which are available in a Form 10-Q filed with the Securities and Exchange Commission.

For Avaya backers hoping to see an IPO this year or in 2013, the results are not encouraging. In the three-month period that ended on March 31, Avaya generated revenue of $1.257 billion, with $637 million coming from product sales and $620 million from services. Those numbers were down from the correspondence quarter the previous year, when the company produced $1.39 billion in revenue, with product sales generating $757 million and services contributing $633 million. Basically, product sales were down sharply and services down slightly.

No Growth in Sight

Avaya also is seeing a weakening in channel sales. Moreover, growth from its networking products, on which the company had once pinned considerable hope, is stagnating. In the six-month period ending March 31, the company generated just $146 million from Avaya Network sales, down from $154 million in the preceding year. For the latest three-month period, concluding on the same date, networking sales were down to $64 million from $76 million last year. It is not projecting the profile of a growth engine.

Things are not much better in Avaya’s Global Communications Solutions (GCS) and Enterprise Collaboration Solutions (ECS) groups, which together account for the vast majority of the company’s product revenue. At this point, Avaya does not have a business unit on its balance sheet showing growth over the six- or three-month periods for which it filed its latest results.

Meanwhile, losses continue to mount and long-term debt remains distressingly high. Losses were down for both the three- and six-month periods reported by Avaya, but those mitigated losses were derived from persistent cost containment and cuts, which, if continued indefinitely, eventually (as in maybe now) hinder a company’s capacity to generate growth.

Interestingly, Avaya’s costs and operating expenses are down across the board, except for those attributable to “restructuring charges,” which are up markedly Avaya’s net loss for the six months ended on March 31 were $188 million as compared with $612 million last year. For the three-month period, the net loss was $162 million as compared with $432 million the previous year.

IPO Increasingly Unlikely

Although Avaya is not a public, and — company aspirations notwithstanding — does not appear to be on a trajectory to an IPO, markets reacted adversely to the financial results. Avaya bonds dropped to their lowest level in fourth months in response to the revenue decline, according to a Bloomberg report.

Avaya’s official message to stakeholders is that it will stay the course, but these results and market trends suggest a different outcome. Look for the company to explore its strategic options, perhaps considering a sale of itself in whole or in part. A sale of the floundering networking unit could buy time, but that, in and of itself, wouldn’t restore a growth profile to the company’s outlook.

Sources who claim to be familiar with the matter told Reuters and Bloomberg that Avaya has deferred its IPO because of tepid demand amid competition for investment dollars from Facebook, the Carlyle Group, and Palo Alto Networks, among others.

Reconsidering the “Nortel Option”

Well, if you are generously disposed, you might believe that particular interpretation of events. However, if you are more skeptical, you might wonder whether an Avaya IPO will ever materialize. If I were making book on the matter — and I’m not, because that sort of thing is illegal in many jurisdictions — I would probably skew the morning-line odds against Avaya bringing its long-deferred IPO to fruition.

Some of you found it amusing when I mooted the possibility of Avaya pursuing the “Nortel option” — that is, selling its assets piecemeal to various buyers — but I can easily envision it happening. Whether that occurs as part of bankruptcy proceedings is another question, though Avaya’s long-term debt remains disconcertingly and stubbornly high.

Despite recent acquisitions, including that of Radvision for $230 million earlier this month, I don’t see the prospect of compelling and sustained revenue growth that would allow Avaya to position itself as an attractive IPO vehicle.

Unconvincing Narrative

No matter where one looks, Avaya’s long-term prospects seem unimpressive if not inauspicious. In its core business of “global communications solutions” — comprising its unified-communications and contact-center product portfolios — it is facing strong rivals (Cisco, a Skype-fortified Microsoft) as well as market and technology trends that significantly inhibit meaningful growth. In networking, its next-biggest business, the company’s progress has been stalled by competition from entrenched market leaders (Cisco, Juniper, HP, etc.), the rise of aggressive enterprise-networking newcomers (Huawei), and a chronic inability to meaningful differentiate itself from the pack.

According to a quarterly financial report that Avaya filed with the Securities and Exchange Commission (SEC) last month, the company generated overall revenue of $1.387 billion during the three months ending on December 31, 2011. That was marginally better than the $1.366 billion in revenue Avaya derived during the corresponding quarter in the previous year. In the fourth quarter of 2011, products accounted for $749 million of revenue and services contributed $638 million, compared to product revenue of $722 million and services revenue of $644 million during the fourth quarter of 2010.

If we parse that product revenue, Avaya’s story doesn’t get any better. The aforementioned “global communications solutions” produced $667 million in revenue during the fourth quarter of 2011, up slightly over revenue of $645 million in the fourth quarter of 2010. Those growth numbers aren’t exactly eye popping, and the picture becomes less vibrant as we turn our attention to Avaya Networking. That business generated revenue of $82 million in the fourth quarter of 2011, a very slight improvement on the $78 million in revenue recorded during the fourth quarter of 2010.

Lofty Aspirations

Avaya can point to seasonality and other factors as extenuating circumstances, but, all things considered, most neutral parties would conclude that Avaya has a mountain to climb in networking. Unfortunately, it seems to be climbing that mountain without sensible footwear and with the questionable guidance of vertiginous sherpas. I just don’t see Avaya scaling networking’s heights, especially as it pares its R&D spending and offloads sales costs to its channel partners.

True, Marc Randall, who now heads Avaya Networking, has lofty aspirations for the business unit he runs, but analysts and observers (including this one) are doubtful that Avaya can realize its objective of becoming a top-three vendor. Hard numbers validate that skepticism: Dell’Oro Group figures, as reported by Network World’s Jim Duffy, indicate that Avaya has lost half of its revenue share in the Ethernet switching market since taking ownership of Nortel’s enterprise business nearly three years ago. Furthermore, as we have seen, Avaya’s own numbers from its networking business confirm a pronounced lack of market momentum.

Avaya’s networking bullishness is predicated on a plan to align sales of network infrastructure with key applications in five target markets: campus, data center, branch, edge, and mobility. The applications with which it will align its networking gear include Avaya’s own unified communications and contact center solutions, its Web Alive collaboration software, and popular business applications that it neither owns nor controls.

Essentially, Avaya’s networking group is piling a lot of weight on the back of a core business that is more beast of burden than Triple Crown thoroughbred.

Growth by Acquisition?

Perhaps that explains why Avaya is searching for growth through acquisitions. In addition to the acquisition of Radvision this year, Avaya last year acquired Konftel (for $15 million), a vendor of collaboration and conferencing technologies; and Sipera, a purveyor of session-border controllers (SBCs). The Radvision acquisition extended Avaya’s product reach into video, but it probably will not do enough to make Avaya a leader in either videoconferencing or video-based collaboration. It seems like a long-term technology play rather than something that will pay immediate dividends in the market.

So the discussion comes full circle as we wonder just where and how Avaya will manage to produce a growth profile that will make it an attractive IPO prospect for investors. I’m not a soothsayer, but I am willing to predict that Avaya will sell off at least some assets well before it consummates an IPO.

In a recent piece at Forbes, Roger Kay complained that parasitic vendors are killing the annual Consumer Electronics Show (CES) in Las Vegas, the 2012 edition of which kicks off next week. When Kay refers to parasites, he means vendors that avail themselves of nearby hotel suites, where they host and entertain a select audience of invitation-only customers and partners, while evading the time-sucking clutches of the hoi polloi that pack the show floor.

As a vendor strategy, Kay allows, the hotel-suite gambit might make sense, but he’s concerned about the effect of the big-vendor exodus from the show floor. Among the industry players Kay calls on the carpet are Microsoft (exhibiting for the last time at CES this year), Dell, Acer, and Cisco.

Avoiding the Floor, Not the Show

Cisco? Yes, that Cisco. The networking titan that was supposed to be refocusing away from consumerist distractions has decided to hole up in a Las Vegas hotel suite next week on the periphery of a consumer-oriented electronics trade show. Unlike Kay, my problem with Cisco at CES is not that it prefers a sumptuous hotel suite to the lesser glories of the show floor, but that it will be there at all.

In the long-ago spring of 2011, when Cisco announced that it was immolating its Flip video camcorder business, the company stated that it was refocusing around five key technology areas: routing, switching, and services; collaboration; data center virtualization and the cloud; architectures; and video. Despite the apparent contradiction that Cisco was killing the Flip video camcorder while strategically prioritizing video, it seemed pretty clear Cisco’s denotation of “video” encompassed enterprise-related video, such as telepresence and videoconferencing, rather than the consumer-oriented video represented by the defunct Flip.

Belated Acknowledgment

Or did it? After all, Cisco kept its consumer-oriented umi telepresence systems even as it binned Flip. Then again, Cisco belatedly acknowledged that particular error of omission, recently shuttering the umi business, such as it was.

That means Cisco finally is getting itself aligned with its strategic mandate — except, of course, when it isn’t. You see, Cisco still has its home-networking offerings, represented by the Linksys product portfolio, and, unless the company is exceptionally free with its definitions and interpretations, it would encounter great difficulty reconciling that business with its self-proclaimed strategic priorities.

Last year, Cisco said it would attempt to align the Linksys business with its core network-infrastructure business, though that would appear more a theoretical than a practical exercise. Meanwhile, some analysts expected Cisco to divest its low-growth, low-margin consumer businesses, but Cisco’s home-networking group, which definitely checks those divestiture-qualifying boxes, remains in the corporate fold.

Still, speculation persists about a potential sale of the Linksys unit, even as representatives of that unit attempt to portray it as a “key part” of Cisco’s strategy. According to that defiant narrative, Linksys’ solutions are supposed to be the centerpiece of a master plan that would put Cisco at the forefront of home-entertainment networks that distribute Internet-based video throughout the home to devices such as television sets and BluRay players. But with Cisco’s recent retreat from its umi videoconferencing, the company has decided that it will refrain from handling at least one type of video content in the home.

More Strategic Rigor Required

Look, I understand why Cisco likes video. It consumes a lot of bandwidth, and that means Cisco’s customers, including telcos and cable MSOs as well as enterprises, will need to spend more on network infrastructure to accommodate the rising tide of video traffic. I get the synergies with its core businesses, I really do.

But is Cisco truly equipped as a vendor and a brand that can win the hearts and minds of consumers and cross the threshold into the home? The company’s track record would suggest that the answer to that question is an emphatic and resounding no. Furthermore, does Cisco really need to be in the home to capture its “fair share” of video-based revenue? Again, the answer would seem to be negative.

When I read that Cisco was ramping up for CES, even though it doesn’t have a booth on the show floor, I was reminded that the company still needs to apply more rigor to its refocusing efforts. In the big picture, perhaps the resources expended to stage a consumer-oriented promotional blitz in Las Vegas next week do not distract significantly from Cisco’s professed strategic priorities. Nonetheless, I would argue that its CES excursion doesn’t help, and that an opportunity cost is still being incurred.

My view of the commercial prospects for the Cius has shifted significantly during the past year, from when Cisco first announced the pseudo-tablet to now, as it prepares to ship the device, presumably in something approximating volumes. Back in the summer of 2010, I thought the Cisco Cius might have a fighting chance of currying favor within the company’s installed base, playing to IT decision makers with a practical and broad-based extension of its video-collaboration strategy.

Changing Landscape

Some things have changed since then. The Apple iPad franchise, as we all know, has gone from strength to strength. iPads now proliferate in small businesses and enterprises as well as in homes. They’ve crossed the computing rubicon from the consumer realm to the business world. They, like iPhones and other smartphones, also have helped to engender the much-discussed “consumerization of IT,” whereby consumers have insisted on bringing their favorite devices to the office, where they have been gradually and grudgingly accepted by enterprise IT departments under imperatives from CFOs to bring down IT-related capital and operating expenses.

That has cut into Cisco’s appeal. Cisco, as a big old-school enterprise player, didn’t count on consumerist employees having any appreciable say in the navigation of the enterprise IT ship. Cisco, as the Flip debacle, made obvious, is not exactly a popular consumer brand, notwithstanding the barrage of television commercials it has unleashed on couch potatoes during the last several years.

One could also argue that the commoditization of a broad swathe of enterprise-networking equipment, led by Cisco competitors, also is slashing into the giant’s dominance as well as its margins. Moreover, it remains to be seen how the inexorable march of virtualization and cloud computing will redefine the networking universe and Cisco’s role as the brightest star in that firmament.

Penny-Pinching as New Normal

Then there are macroeconomic factors. Everywhere in the developed world, IT buyers at SMBs and large enterprises alike are trying to save hard-earned money. Cisco can wave cost-of-ownership studies all it wants, but most network and technology buyers do not perceive Cisco products as money savers. Consequently, there’s a big push from buyers, as perhaps never before, for open, standards-based, interoperable solutions that are — you guessed it — cheaper to buy than the proprietary solutions of yore.

So, it all amounts to a perfect storm driving right through the heart of John Chambers’ once-peaceful neighborhood. This is true for Cisco’s entire product portfolio, not just the Cius, but I’m writing about the Cius today — not that I’m obsessed with it, you understand — so let me pull things back into tighter focus now.

Trying to Stop the Phones from Bleeding

With the Cius, Cisco still seems to the think that the old rules, the old market dynamics, and its old customer control still apply. I thought more about this yesterday when I received an email message from a regular reader (imagine that!) who pointed out to me that Cisco is right about one thing: The Cius isn’t a tablet.

I’ll quote directly from his message:

The Cius isn’t a tablet — it only looks like one. It’s a desktop and video phone. Cisco is in this business because PCs and wireless handsets are subsuming the function of the enterprise desktop phone (thanks to Microsoft Lync, Apple iPhone, Android, etc.). Their phone business is a multi-billion dollar per year business. I agree — the Cius is a distraction, but they have to do *something* to protect that desktop phone revenue stream. Tough spot.

These are perceptive comments, and they’re borne out by recent articles and analysis on Cisco’s Cius push. All of which makes me feel, even more than when I wrote my Cius post of earlier this week, that the product is doomed to, as Mike Tyson said in one of his best malapropisms, “fade into Bolivian.”

Gambit Won’t Work

Cisco has made a lot of money selling desktop IP phones, but that gravy train, like so many others, is drawing fewer passengers at each station. The trends I mentioned above — stronger consumer-oriented offerings from competitors in smartphone and tablets, the consumerization of IT, the enterprise focus on cutting IT costs wherever possible, and a concomitant pull away from premium proprietary technologies — are threatening to eviscerate Cisco’s IP phone franchise.

Hence, the Cius. But, even as a defensive bulwark, it doesn’t work. At the end of the day, CIsco might see an IP phone replacement when it looks at the Cius through its rose-colored glasses, but customers will see it for what it is — a relatively high-priced, seven-inch tablet running a smarphone-version of Android, and tied to proprietary video, voice, and collaboration solutions. Both the Cius and the AppHQ go strongly against the tide of IT consumerization and mobile-platform heterogeneity. That’s not a tide Cisco can reverse.

With sublime brevity, my reader-correspondent said it best: Tough spot.